Maximizing the Role of IRAs in Estate Planning
In this comprehensive guide to IRAs in estate planning, we define exactly what an IRA is, unpack its importance, and guide you through your IRA options (Traditional vs. Roth). We’ll also provide tips on how to choose the right IRA to meet your financial goals.
Whether you’re a seasoned investor or new to the game, we offer free estate planning seminars to share how IRAs in estate planning and other effective planning strategies can secure your financial future and prevent any loose ends from unraveling after death. You can register now to reserve your spot in one of our upcoming estate planning seminars or call Craig Associates, PC at (828) 258-2888 for an initial case evaluation.
IRAs in Estate Planning: What does that look like?
Individual Retirement Account, or IRA, is a type of retirement savings account designed to provide people with a tax-efficient way to save for retirement. IRAs differ from regular savings or investment accounts in a few key ways. IRAs in estate planning:
- Have unique tax advantages
- Encourage long-term investment
- Have restrictions and penalties for withdrawing your savings before retirement
IRAs in estate planning are best utilized as soon as possible—the tax advantages allow your savings to grow, or compound, more quickly than a taxable account. IRAs in estate planning also offer a wider array of investment choices and put the control and responsibility of your retirement savings in your hands.
Types of IRAs in Estate Planning
There are two primary types of IRA options: Traditional IRAs and Roth IRAs. Both options offer valuable tax benefits, but they do so in different ways. A professional estate planning attorney can help you choose the right option for you based on your income level, your tax filing status, and your foreseen financial needs in retirement.
Traditional IRA contributions can be fully or partially deductible and could be beneficial if you anticipate being in a lower tax bracket in retirement than you are now, as you’d owe less tax on the withdrawals.
Roth IRA contributions have no tax deductions, but if you follow the rules, all future withdrawals will be tax-free. You can withdraw your initial investments (but not the earnings) penalty-free and tax-free anytime, not just after the age of 59½. Roth IRAs make the most sense if you expect your tax rate to be higher during retirement than your current rate.
- Why choose us?
- Glossary
Why choose us?
Chris Craig and Patty Malesh at Craig Associates, PC in Asheville, NC, were fabulous to work with. Who would have ever thought that estate planning could actually be fun?! I needed to update and redo my estate documents and I chose Craig Associates because of the good reviews. They did not disappoint. Chris did a very helpful informational zoom session with me explaining wills vs trusts and why one might be a better choice for me here in NC, and he also answered questions that I had. Patty Malesh was so helpful and kind and always responded quickly when I needed something.
I had a couple of quirky things I wanted to include, and Chris and Patty helped set things up to make those happen. Signing the estate documents was an enjoyable experience (complete with Chris’ sweet dog helping out.) We made a few changes on the spot, Chris went over everything with me again, and he provides a notebook with all the documents and other helpful information. He even provides the forms you need to send to your financial institutions, which makes everything super easy and not as confusing or overwhelming. I had the most interaction with Chris and Patty, but the whole staff was efficient and friendly. I felt like I was in excellent hands the whole time, and I highly recommend Craig Associates PC to anyone who needs help with estate planning and estate documents.
Jessica L. | Asheville, NC
Learn the lingo around IRAs in estate planning.
Trust: A legal arrangement in estate planning, often used to hold and manage IRAs in estate planning, wherein a trustee holds property as its nominal owner for the good of one or more beneficiaries.
Distribution: The amount taken out from IRAs in estate planning. Distributions are subject to income taxes that can be mandatory (like RMDs) or discretionary.
Licensing: This term is usually related to the process of gaining official permission or a license to practice as a professional.
Housing: This term might come into play when discussing real estate assets from IRAs in estate planning.
Heirs: Individuals who may inherit assets from IRAs in estate planning or others.
Conduit: A type of trust where all distributions from IRAs in estate planning or other assets are passed directly to the beneficiaries. Conduit trusts impact the speed and tax considerations of inheritance.
Secure Act: Legislation passed in the U.S. in 2019 that impacted rules for IRAs in estate planning, including the age for starting RMDs and the use of “stretch” IRAs for non-spousal beneficiaries.
Inherited IRA: An IRA that becomes owned by a beneficiary after the owner’s death.
Minimum Distributions: These are the least amounts that must be withdrawn from IRAs in estate planning each year after a certain age or event.
IRA Assets: The collective investments held within IRAs in estate planning, which will be distributed to beneficiaries or subject to RMDs during the owner’s lifetime.
Income Taxes: The taxes due on the distributions from IRAs in estate planning.
Local Housing Authorities: Government entities that manage public housing.
Beneficiary Designations: Who will inherit IRAs in estate planning assets.
Life Expectancy: The estimated number of years a person is expected to live, which can impact RMD calculations and the timing of distributions from IRAs in estate planning.
Retirement Accounts: General term for accounts like IRAs in estate planning or a 401k plan that are used to save and invest for retirement.
10-Year Rule: A rule introduced by the Secure Act for inherited IRAs in estate planning, requiring non-spousal beneficiaries to withdraw all funds within 10 years.
Internal Revenue Service (IRS): The U.S. government agency responsible for enforcing tax laws, including those related to IRAs in estate planning.
Surviving Spouse: The spouse who outlives the other, often the primary beneficiary of IRAs in estate planning.
Probate: The legal process of administering a decedent’s estate, which IRAs in estate planning can often bypass through direct beneficiary designations.
Charitable Contribution: Donations made to non-profit organizations, which can be made from IRAs in estate planning and potentially offer tax advantages.
Tax-Advantaged: Refers to the preferential tax treatment of certain accounts, such as IRAs in estate planning, which can defer or eliminate tax on investment growth.
Living Trusts: A trust created during the grantor’s lifetime that can hold assets including IRAs, potentially bypassing probate and providing control over asset distribution.
Options for Investing IRAs in Estate Planning
As a crucial part of investing your IRAs in estate planning, it’s important to understand and carefully consider each option to ensure that your IRA is tailored to meet your financial goals and risk tolerance. You may wish to invest your IRA in several ways, including:
- In the stock market. This choice offers the potential for high returns, but it comes with a larger amount of risk compared to other options.
- In bonds. Bondholders lend money to a corporation or government entity in exchange for regular interest payments and the return of the investment at the end of the bond term.
- In mutual funds. Mutual funds offer a way to invest in a diversified portfolio of stocks, bonds, and other assets without having to purchase each one individually. A mutual fund pools money from many investors and uses it to buy a broad spectrum of investments; however, fees associated with mutual funds can eat into overall returns.
- In real estate. You can invest directly in real estate or indirectly through Real Estate Investment Trusts (REITs). Direct real estate investments can have significant returns through rental income and property appreciation. They typically require a substantial initial investment and come with additional responsibilities, such as property management. Investing in REITs, on the other hand, provides exposure to the real estate market without the need for direct property ownership.
- In Precious Metals. Precious metals, such as gold and silver, are hard assets that tend to retain their value over time and can act as a hedge against inflation and economic instability. Some IRAs in estate planning allow for direct ownership of precious metals, while others allow for investment in exchange-traded funds (ETFs) that track the value of these metals.
Diversification in IRAs in Estate Planning Investments
Diversification is a critical aspect of IRAs in estate planning investment strategies.
Understanding the Concept of Diversification of IRAs in Estate Planning
Diversification is the financial equivalent of the saying, “don’t put all your eggs in one basket.” The idea behind this strategy is that when your investment portfolio is spread across different assets, the likelihood of all assets failing at the same time is significantly reduced. Diversification is not a guarantee against loss; some investments may perform poorly, but diversification will help to minimize their impact.
Strategies to diversify IRAs in Estate Planning
Various strategies help investors diversify their IRAs in Estate Planning effectively. These strategies may including any other the following methods, such as:
- Investing across different asset classes (stocks, bonds, real estate, or commodities)
- Diversifying within each asset class (investing in different industries or sectors within the stock market or buying bonds with different maturities and credit qualities)
- Investing in global or international markets
- Selling assets that have performed well and using the proceeds to buy assets that are expected to perform well in the future (the “buy low and sell high” strategy)
An experienced estate planner uses diversification strategies for IRAs in estate planning to minimize risk and potentially optimize returns.
IRAs in Estate Planning FAQs
How does diversification benefit IRAs in estate planning?
Diversifying IRAs in estate planning spreads investments over a variety of assets to reduce the risk of your portfolio bottoming out and can provide a consistent return rate across varying market conditions.
What is the impact of diversification on retirement fund growth?
Diversification potentially enhances the rate of your retirement fund growth and lowers the risk of significant losses.
How should I approach IRAs in estate planning?
You should consider your financial goals, risk tolerance, and how much time you have before retirement when incorporating IRAs in estate planning. Hiring a professional estate attorney will ensure no part of your estate plan is overlooked and you earn and preserve as much wealth as legally possible.
What are the tax implications of IRA investments?
Traditional IRAs in estate planning may be tax-deductible and reduce your current taxable income. Remember, withdrawals during retirement are taxable and may have other implications to consider. Roth IRA contributions are made after taxes so the earnings will be tax-free during retirement.
Learn more about IRAs in estate planning
Choosing the right IRA is a long-term decision that can significantly affect your retirement lifestyle and warrants careful consideration, informed decision-making, and professional guidance. Our expert estate planners at Craig Associates, PC can ensure that you select the IRA that best meets your investment and retirement needs. Call us at (828) 258-2888, contact us using the form below, or register for a free estate planning seminar to discover how IRAs in estate planning can help you enjoy your golden years and leave more wealth to your spouse, children, or beneficiaries.
